The rapid growth of the developing world is dramatically reshaping and redefining the global economic landscape, according to a report by the World Bank.
By 2025, the Bank forecasts, six major emerging economies --Brazil, China, India, Indonesia, South Korea, and Russia -- will represent more than 50 percent of all global economic growth.
These successful economies will, in turn, help drive growth in poorer countries via cross-border commercial trade and financial transactions.
The study projects that between 2011 and 2025, the emerging market economies will, on average, grow by 4.7 percent annually, while the developed nations will only grow by 2.3 percent.
Still, the existing developed world (Eurozone, UK, Japan, US) will still remain prominent and play a core role in powering global growth as a whole.
“The fast rise of emerging economies has driven a shift whereby the centers of economic growth are distributed across developed and developing economies – it’s a truly multi-polar world,” said Justin Yifu Lin, the World Bank’s chief economist and senior vice president for development economics.
“Emerging market multinationals are becoming a force in reshaping global industry, with rapidly expanding South-South investment and [foreign direct investment] inflows. International financial institutions need to adapt fast to keep up.
With the emergence of a substantial middle class in developing countries and demographic transitions underway in several major East Asian economies, the Bank noted, stronger consumption trends are likely to prevail, which in turn can serve as a source of sustained global growth.
Moreover, emerging market companies will also play a more dominant role in global M&A transactions and other investments. In tandem with that development, the Bank believes, the international monetary system will no longer be controlled by a single currency
“Over the next decade or so, China’s size and the rapid globalization of its corporations and banks will likely mean a more important role for the renminbi,” said Mansoor Dailami, manager of emerging trends at the World Bank.
“The most likely global currency scenario in 2025 will be a multi-currency one centered around the dollar, the euro, and the renminbi.”
(At present the US dollar functions as the globe’s reserve currency)
However, the study warns that emerging economies will need to enact structural changes in order to guarantee and sustain such growth. For example, countries that depend on technological adaptation and external demand will need to focus more on productivity gains and domestic demand.
“In many big emerging economies, the growing role of domestic demand is already apparent and outsourcing is already under way,” said Hans Timmer, the World Bank’s director of development prospects.
“This is important for the least developed countries, which are often reliant on foreign investors and external demand for their growth.”